Without a doubt, the Nigerian economy has been in dire straits for some time, even before the start of the coronavirus pandemic (by March 2021) which is ravaging the world. This is why in such a short period of five years (2016 to 2020), the economy has twice sunk into a deep recession; and all government efforts have been focused on getting the economy out of the abyss. Truly, the government has pushed a medley of policies and programs, some of them poorly digested, to pull the economy out of the doldrums. And this explains the countless number of “intervention packages” from various government agencies, especially the Central Bank of Nigeria, to stimulate the economy and put it on a sustainable growth path.
However, the economy has not achieved robust momentum or recovery; but a wobbly and fragile limp – thus practically pushing the fiscal and monetary authorities at their wit’s end as to which way to go. This reality unwittingly attracted the generally unpleasant and unpopular pontifications and prescriptions of the Bretton Woods institutions (the World Bank and the International Monetary Fund) for economic growth and development. Thus, in recent times, the IMF and the World Bank have shown “particular interest” in the way forward towards meaningful economic recovery and growth for Nigeria. The voices of these global institutions are growing louder; their visits and publications on Nigeria and its economy are more and more regular. Their comments are increasingly sharp and impactful; and their prescriptions are now accompanied by an “immediate emergency ring”.
And so, on an apparent note of flattery, the World Bank said on November 23, 2021 that the Nigerian government had taken bold steps to mitigate the effects of the COVID-19 pandemic in 2020 through bold reforms, but observed that the momentum of the reform program had diminished, thus undermining Nigeria’s long-term growth prospects. In its latest “Nigeria Development Update (NDU)” titled “Time for Business Unusual”, the Bank highlighted what it called urgent policy priorities that can be implemented over the next three to six months in four areas. keys: (1) eliminate the PMS subsidy while protecting poor and vulnerable households from any inflationary impact; (2) reduce inflation through a coordinated combination of exchange rate, trade, monetary and fiscal policies; (3) catalyze private investment by improving foreign exchange management, easing trade restrictions and promoting a better business environment; and (4) tackle fiscal pressures by improving domestic revenue mobilization and reducing dependence on CBN deficit financing.
A casual glance at these prescriptions will show them to be sound; yet, an impartial interrogation of some of them would show their deleterious impacts (intentional and accidental) on the Nigerian regime, especially at this stage. For example, the issue of PMS subsidies has been on the policy maps of successive administrations in Nigeria for over a decade. Now, the World Bank recommends that the subsidy be phased out in full within six months.
But, how come the grant in the first place? Over the years Nigeria has imported a certain percentage of its PMS requirements; and so, in order not to sell these PMSs to consumers at shockingly high prices (dictated by the cost of importing), governments have absorbed some of the costs. In the past two years, all refineries (owned by the federal government) have been closed and Nigeria has imported all of its PMS. And since the higher the price of crude oil (which Nigeria exports), the higher the price of PMS (since refining nations import crude) that Nigeria imports (ceteris paribus), the rise in oil prices on the international market has become counterproductive for Nigeria. This scenario worsens to the point that what is drawn from crude oil exports is now barely enough to import enough PMS for the country and service its burgeoning external debt.
Now, constrained by the prescriptions of the World Bank, the subsidy must be removed in its entirety within a maximum period of six months (more precisely, the first quarter of 2022). But the issue of subsidies could have been better addressed “at the root” by the World Bank and the Nigerian authorities, determining why local (government-owned) refineries cannot function optimally in Nigeria. Wouldn’t the local refineries have been privatized much earlier than today? Does the cost of building new viable refineries exceed the Nigerian stock market? Or is it a matter of political will or renouncing corruption in Nigeria’s oil and gas sector, which has made local refineries unsustainable over the years? Who benefits from closing all four refineries at the same time, as is currently the case?
Obviously, the complete removal of the PMS subsidy at this point in Nigeria is ominous and ominous. Indeed, its “announcement effect” is already reflected in the rise in prices of all goods and services. So when, in early 2022 and the expected increase of more than 100% in prices of the MPS materializes through the removal of subsidies, it will be reflected in transport costs, food prices, rents of houses, etc. Already, organized labor and their allies in Nigeria are rapidly strategizing over the inescapable clash with government when / if subsidy removal occurs. Specifically, the Nigeria Labor Congress (NLC) on Friday, December 17, 2021 “warned the federal government against the proposed removal of fuel subsidies”, threatening that “the action will be met with nationwide protests” .
When this frightening possibility is linked to the importation of other policy prescriptions into the World Bank’s NDU, namely the reduction of inflation through a coordinated mix of exchange rate, trade, monetary and fiscal policies, the omen of the unfolding scenario becomes darker. But what combination of policies will change the taste of the majority of Nigerians in favor of locally produced products over the next six months, as demanded by the World Bank? Importing / consuming foreign goods has been a way of life for most Nigerians; a way of life that depletes the country’s foreign exchange reserves and continually weakens its local currency, the Naira.
The available data on Nigeria’s foreign trade clearly show this trend: a rapidly growing deficit (more imports than exports). Latest figures from the National Bureau of Statistics (NBS) show Nigeria has a trade deficit of more than one trillion naira in the second quarter of 2021; this gap widened to more than three trillion naira in the third quarter of 2021 and is very likely to widen further in the last quarter of the year. Unsurprisingly, crude oil still accounted for around ninety percent of Nigeria’s exports, according to NBS data, as of the third quarter of 2021, underscoring the country’s dangerously near-dependence on oil exports.
The question is, what is the World Bank’s prescription for an effective diversification of the Nigerian economy so that the country begins to earn substantial foreign exchange sustainably from items other than crude oil? What are the Bank’s recommendations for dealing with failures and “willful obstructions” on Nigeria’s export channels (especially seaports)? Not so long ago, during a presidential retreat of the Nigerian government, the Chief Executive Officer of the African Development Bank (AfDB), Dr Akinwunmi Adesina (a Nigerian) said among others: “.. The cost of exporting 100 tonnes of freight to Nigeria is $ 35,000, compared to $ 4,000 in Ghana. Today, the main ports of West Africa are located in Côte d’Ivoire, Ghana, Togo and the Republic of Benin. All of these countries have modernized their port management systems, leaving Nigeria far behind.
Faced with this gloomy trend, what are export processing zones and / or free zones doing to catalyze Nigeria’s exports? What about the Nigerian Export Promotion Commission (NEPC) – what are its contributions to Nigeria’s export campaign? What about the agencies that ensure the quality and standard of the goods exported from Nigeria? These agencies are notorious for their shoddy work which results in many Nigerian items being rejected, abandoned and rotten in the countries where they are exported. So how does the government / World Bank manage all of this to reasonably increase Nigeria’s exports and reverse the perpetual trade deficit debacle?
In view of all this, it will be relevant to say that the “forced implementation” of the World Bank’s prescriptions contained in its latest “Nigeria Development Update” is unlikely to revive the country’s prostrate economy. . At best, such a decision will cause more hardship for citizens, cause social unrest and lead to further impoverishment for a large part of the population. And perhaps it informed the seemingly preemptive move by the World Bank to arrange a “$ 800 million conditional transfer” for Nigeria. Unfortunately, the governor of each state in Nigeria must set up a steering committee to oversee the disbursement of his own share of this “free money”.
The World Bank distributes this money in conjunction with the Nigerian Governors’ Forum (NGF) and the Federal Ministry of Humanitarian Affairs, Disaster Management and Social Development (FMHDS). But a danger in all of this is the mixture of politicians’ agendas and agendas with the “pure economic gesture” of the World Bank. And transfer payments are not known to boost production or any economic activity, which the Nigerian economy sorely needs. We wait and we see!
Okeke, a practicing economist and business strategy and sustainability consultant, wrote from Lagos.